Enterprises in developing countries are increasingly connected to the Internet, but their involvement in e-business remains limited, says UNCTAD´s E-commerce and Development Report 2004(1) , released today. Although small- and medium-sized enterprises have the largest potential for improving productivity by adopting e-business, they will not actually benefit from ICT without access to good managerial and technical skills and innovation -- something SMEs, particularly in developing countries, often find difficult to afford.

In an effort to move beyond anecdotal evidence about ICT in developing countries, the report contains a statistical compilation produced by UNCTAD on ICT use by enterprises in a variety of countries (table; see also some facts and figures about general Internet usage at the end of this release). This work, part of a joint initiative by several international organizations, will result in a global database of ICT indicators to help developing countries address their lack of reliable, internationally comparable statistical information about ICT usage, which is essential for ICT policy-making.

The Report finds that the availability of computers and the Internet is generally not a major problem -- at least not for firms in urban areas -- although connections remain slow. A joint survey conducted by UNCTAD and the Fundación para el Desarrollo Sostenible en América Latina (FUNDES)(2) , in the capital cities of five Latin American countries (Chile, Colombia, Costa Rica, Mexico and Venezuela) shows that 97% of the SMEs surveyed in these areas had PCs and 94% had Internet access. According to other surveys quoted in the report, half of the companies surveyed in Thailand in 2001 had websites, especially in the tourism sector. According to another survey conducted in Ghana in 2002, 85% of the firms surveyed had Internet access, 35% had a Web presence and 16% were engaged in e-commerce.

These and other more sector-specific surveys discussed in the Report -- referring to Bangladesh, Egypt, Kenya, Morocco, Nigeria, Senegal, South Africa and Uganda -- point to similar findings: Internet access is relatively high among enterprises but the adoption of e-business is low. The Internet is often used only by the owner/manager, and mostly for research and e-mail.

More online buyers than sellers

Automating and integrating business processes through ICTs (e-business) is much less frequent in SMEs, and e-commerce is still rare, particularly for sales: while the percentage of companies covered in UNCTAD´s survey that make purchases online ranges from 59% of those with Internet access in Costa Rica to 16% in Mexico, the number of those selling online is much smaller, extending from 30% in Costa Rica to 2% in Colombia. The service sector is where most active e-business adopters are involved, with trade and manufacturing lagging behind. This could be explained by the fact that marketing and sales functions can be carried out with a relatively basic level of Internet access and usage, while supply chain management, which is important in manufacturing, requires higher levels of systems integration. Integrating business functions by using ICTs is hard for SMEs in any environment, but much more so in developing countries.

Among the respondents to UNCTAD´s survey, high costs of ICT (48%), lack of staff skills (42%), short lifecycle of software (41%), lack of match between ICT supply and demand (38%) and lack of client and/or supplier readiness (34%) are the most-quoted barriers of access to ICT use. Of those developing-country SMEs that already use the Internet, the perception about the main barriers to e-business uptake are similar to those of their counterparts in developed countries: lack of network security (71%), development costs (41%), "a waste of time" (37%), lack of client/supplier readiness (33%) and slow and unstable connections (32%). Most SMEs also lack a defined e-business strategy, often because of low overall levels of ICT awareness among owner/managers.

Partnerships between public agencies and private players can play a crucial support role for SMEs in addressing these barriers through policies aimed at improving access (in terms of quality and cost), generating trust in the Internet and upgrading managerial and technical skills, the Report finds. Promoting the use of ICT by SMEs in developing countries should also be a major priority of national e-strategies -- the key instruments for the advancement of the information society called for in last year´s World Summit for the Information Society (WSIS). In the context of the second phase of WSIS, to take place in Tunis in late 2005, the Report calls for developing a consensus on the national policies and the international support and environment that can lead to a higher degree of ICT uptake by developing-country enterprises.

Internet governance: balancing political concerns

The E-commerce and Development Report also discusses Internet governance, a question that is likely to attract much attention at the Tunis Summit and throughout its preparatory process. The Report says that political concerns about the balance of existing governance arrangements, particularly from the viewpoint of the interests and needs of developing countries, make a re-examination of the management mechanisms applicable to the operation of the Internet an absolute necessity. At the same time, from the perspective of economic competitiveness, and given the necessary political will, existing mechanisms of international coordination, cooperation and rule-making could suffice to deal with many of the economic and business governance problems raised by the Internet.

A distinction is sometimes made between "governance on the Internet" (which refers to the impact of the Internet on social, cultural, economic or political activities) and "governance of the Internet" (which applies to the management of Internet resources). The Report suggests that for governance on the Internet, the substantive character of the problem at hand, rather than the fact that the Internet is the medium through which a particular problematic activity is conducted, should be the yardstick for choosing which governance instruments are applicable.

Concerning the management of the core Internet resources (such as the Domain Name System, IP addresses or the root servers), the Report argues that reaching a common definition of the interests of the international community that must be served by the system of Internet governance, and agreement about the way in which governments and other players should be involved in it, are key aspects of the problem. UNCTAD identifies the stability and quality of service of the Internet, the prevention of its fragmentation, the true internationalization of the management of the relevant institutions and the maintenance of the bottom-up processes of policy-making as necessary features of any reform proposals. Given the complex way in which technological and policy issues are intertwined, the Report says that a network of differentiated forums of cooperation and coordination might be more likely to provide broadly acceptable results than a single, comprehensive governance framework. Finally, the Report supports a gradualist, evolutionary approach to the problem of Internet governance.

For developing countries, the Report concludes that it is important to assess the implication of various models of Internet governance, particularly from the standpoint of their impact on the capacity of their economies to benefit from the adoption of e-business practices in order to enhance their productivity and competitiveness. Many developing countries will need a sustained capacity-building effort in the area of Internet policy-making if they are to participate effectively in any future management or governance mechanisms.

The E-commerce and Development Report 2004 also looks at other issues related to the economic development implications of the use of ICT in business and government activities. These include the Internet and the creative industries (see UNCTAD/PRESS/PR/2004/040), online higher education, government e-procurement in developing countries, the protection of privacy rights in an online environment and a case study on the competitiveness of the Tunisian ICT sector.

Internet usage: some facts and figures

Some 685 million people(3) -- 11% of the world´s population -- had access to the Internet by 2003.

Over one third of all Internet users in the world live in developing countries, whose share of the world´s "Internet population" grew by nearly 50% between 2000 and 2003.

Five countries - Brazil, China, India, Mexico and Republic of Korea -- account for over 60% of all Internet users in the developing world.

The number of Internet hosts worldwide grew by 35.8% between January 2003 and January 2004, reaching a total of over 233 million -- more than twice as fast as the growth rate for 2002. Most hosts belong to generic top-level domains (TLDs), such as .net or .com, which cannot be linked to a specific geographical location, making it difficult to track the absolute and relative number of hosts in individual countries. But in January 2003, the only TLDs corresponding to developing countries that ranked among the first 40 by number of hosts were those of Brazil (.br), Taiwan Province of China (.tw), Mexico (.mx), Argentina (.ar), Republic of Korea (.kr), Hong Kong, China (.hk) and Singapore (.sg). By January 2004 the TLDs of Turkey (.tr) and South Africa (.za) had joined the top 40 of the Internet Domain Name Survey of the Internet Software Consortium (ISC).

Websites represent the main gateway to the Internet for both business-to-consumer and business-to-business transactions, and the evolution of the number of www servers worldwide is thus a useful indicator of the growth of e-business. As of June 2004 there were over 51,635,000 websites worldwide, according to a Netcraft.com survey, representing a 26.13% increase over the same month in 2003. The 10.7 million new sites added to the Web in just one year reflect a significant acceleration, given that the Web took 21 months to grow from 30-to-40 million sites. The number of active sites (those allowing user interactivity) grew slightly faster - by 26.39% - in the 12 months preceding June 2004.

The number of websites using the secure socket layer protocol (SSL), which supports secure transactions, grew by 56.7% in the 12 months between April 2003 and April 2004, reaching 300,000, according to another Netcraft survey. This provides some indication of the use of the Web for business transactions, although SSL is not used exclusively used for those purposes.